Have a conversation with a financial advisor

Here are three reasons I believe in working with a financial advisor – an advisor who not just looks at your portfolio but at your life and all its financial-moving pieces.

  • 42 percent of people who work with a financial advisor save more than 10 percent of their income. That’s significantly higher than the 25 percent of who go it alone. (This statistic, like the two others that follow are from a recent survey by Harris Interactive for the Financial Planning Association.)
  • 82 percent feel confident in their ability to cope, financially, with unexpected events. That compares with 57 percent of those who aren’t working with advisors.
  • And 54 percent have estimated how much money they’ll need at retirement, about double those who are relying on their own skills and abilities.

Having a financial advisor can help you understand the financial moving pieces in your life.And yet, the majority of Americans don’t have a relationship with an advisor like this. Why? One reason is that they’re not sure how to find one – because they’re not sure how that initial conversation is supposed to go. That I know because every time I go out and speak to a group of people, particularly a group of women, one of the questions I can count on being asked is how do I find/interview a financial advisor. Here’s the conversation I want you to have. And when you get to the end of it, I want you to keep the following in mind: If any part of you feels uneasy about the person on the other side of the conversation, listen to that feeling. That person may be a perfectly fine, well-qualified financial advisor. But he or she is not the right advisor for you.

What would you recommend for a person in my situation? You’re looking for specifics here – although you’re not likely to get into deep specifics in meeting one – some understanding of how far you are from retirement and your other financial goals and what steps will need to be taken to help you get there. It should not be all about stock and mutual funds from the get-go but about gaining an understanding of your life and using your money as a tool to help you accomplish what you like. Note: Just as some hairdressers gripe about the work of the person who cut your hair previously, I’ve met some advisors who do the same. Watch out for this. It’s very unlikely that everything is wrong with the way you’ve been managing your money. Someone who wants to sell everything and start over is, in my book, often looking to rack up commissions.

How long have you been in this business and what do you like about it? My preference is for advisors who’ve been practicing for at least 3 to 5 years, but those who’ve come out of ancillary fields (accounting, etc) may be fine with a little less. The CFP board of standards requires three years before they’ll issue the Certified Financial Planner credential. As far as an answer to the why question, I’m looking for the person I’m speaking with to show some passion for the field. Being a financial planner isn’t always fun – in down markets it can be downright tough – but someone who enjoys his or her work is always going to put more into it than someone who doesn’t. And it’s a tough answer to fake.

What do you base your projections on? Whenever you run a retirement calculator on the web, you’re asked to make certain assumptions about things like the age you’ll retire and the amount you’ll earn on your money. Nudging them up can make your retirement picture seem much rosier than it actually is. When an advisor runs the calculations, you may not know what lies beneath – unless you ask. Then you can play an informative game of “what-if” to figure out if you’ll still be in decent shape if life doesn’t go as planned.

How much is this relationship going to cost me? In other words, how does this advisor get paid? Some advisors work on commission when you buy and sell particular investments, others take a percentage of assets under management, others charge a fee by the plan or by the hour, and some do a combination of the above. The key is understanding all the fees and expenses – not only for the advisor but for the account – that are likely accumulate to on an annual basis. You won’t be able to get an exact number, but you should be able to get close.

Jean Chatzky

About Jean Chatzky

Jean Chatzky, the financial editor for NBC’s TODAY show, is an award-winning personal finance journalist, AARP’s personal finance ambassador, and a contributing editor for Fortune magazine. Jean is a best-selling author; her eighth and most recent book is Money Rules: The Simple Path to Lifelong Security. She believes knowing how to manage our money is one of the most important life skills for people at every age and has made it her mission to help simplify money matters, increasing financial literacy both now and for the future. In April 2013 Jean launched Jean Chatzky's Money School , a series of college-style, interactive online personal finance courses that give men and women across the country the opportunity to learn from and interact directly with her. Jean lives with her family in Westchester County, New York.
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2 Responses to Have a conversation with a financial advisor

  1. Anonymous says:

    Interesting how numbers can say whatever you want them to say.
    Interesting that you do not post any numbers related to the median net worth or income of those individuals who work with a Financial Advisor vs. those who don’t.
    It doesn’t suprise me in the least that High Net Worth clients save more than Low Net Worth clients, or that they feel more confident in their ability to cope with unexpected financial events (since they have more money stockpiled).

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